Pipe Dreams?

Pakistan remains an “energy deficient” country. Inept energy usage has been a prime cause of uncompetitive cost of production. Impact of energy shortages on the economy is many times the cost of supplying energy through imports or better management of resources. It is far cheaper in the long run to streamline energy transportation efficiency and to encourage conservation than to import larger quantities. A country, to fulfill its requirements, can either go for gas or oil import options, the former being many times cheaper and environmentally effective.

Natural Gas fulfills almost 49% of requirements of energy sector mainly consumed by power (42.1%), industrial (24.2%) and residential and commercial (19.4%) sectors. While the world, including Pakistan currently consumes more oil than gas, the supply of petroleum is expected to contract in the not-too-distant future as global production approaches its peak sustainable level—perhaps as soon as 2010—and then begins a gradual but irreversible decline. The production of natural gas, on the other hand, is not likely to peak until several decades from now, and so is expected to take up much of the slack when oil supplies become less abundant. Natural gas is also considered a more attractive fuel than oil in many applications, especially because when consumed it releases less carbon dioxide (a major contributor to the greenhouse effect).

Various natural gas import projects have remained under the consideration of the Government of Pakistan since the early nineties. Discoveries of new gas finds in the Sind Province in the late nineties resulted in deferring further work on these projects for a few more years. Now, however, under enhanced economic 'activity and demand for gas for the power sector, 'the existing supplies will soon start depleting and sustainable supplies are not likely to be available beyond the year 2010. In order to meet the growing demand, import of gas has now become imperative. And with looming projections of shortage of oil supplies in the years ahead, world focus on natural gas trade has assumed critical importance.

Pakistan has three natural gas rich countries in the region i.e. Turkmenistan, Iran and Qatar, all of whom are looking to tap the ready markets in Pakistan and India for the export of their gas.

The Turkmanistan-Afghanistan-Pakistan Natural Gas Pipeline Project has been conceived based on the earlier projects developed in the 1990s to exploit potential production and transport gas reserves in the Dalautabad gas field in southern Turkmenistan to undersupplied or unsupplied energy markets in Pakistan and India. The pipeline has a capacity of 3BCFD with a cost estimated to be US$ 3.28 Billion. TAP pipeline has to pass through war ravaged Afghanistan. It is understood that the pipeline route and the adjoining areas will need to be cleared of landmines before undertaking any physical work on the ground. Initially, the proposed multibillion-dollar TAP gas pipeline would involve the construction of a pipeline about 1,700 kilometers up to Gwadar. This pipeline would be able to transport up to 20 billion cubic meters of natural gas annually.

The Gas Pipeline Project from Qatar envisages transportation of 1.6 BCFD gas from Qatar to Pakistan through Sea /Deep Sea. A Memorandum of Understanding was signed between Government of Pakistan and Crescent Petroleum International on 17 July 2000. It is an integrated Project where the sponsor is responsible for both upstream development and downstream facilities for the sale of gas. The deep sea route where the pipeline will be laid, the pipeline will be at a depth of 1800-2000 m, for about 100 Km.

The Iran-Pakistan-India Integrated Energy Project (IPI-IEP) has the potential to provide Pakistan with secure energy needs for the next 30-50 years. It is a 2600 km long pipeline which represents the most viable energy import option for Pakistan in terms of technology, gas price and long-term energy security. This means a minimum of 44 trillion cubic feet (for 30 years) or 73 trillion cubic feet (for 50 years) . Besides the Iranian gas represents the cheapest for the import of energy to Pakistan (and India) due to the combination of proximity, geography, cost and competitive well head gas price.

The Ministry of Power and Natural Resources is working on all three options by discussing the issues of each project at different levels with the sponsoring countries/agencies. Pakistan requires first imported gas by 2010-2011, and the IPI project happens to be the only capable project of delivering first gas by late 2011. At the national level, the IPI Projects seems to be the most economically justified; however, the international scenario depicts a different picture.

The very fact that Iran was included with Saddam’s Iraq and Kim Jong Il’s North Korea in the “Axis of Evil” in the President’s 2002 State of the Union Address was an unmistakable indicator of the fact that the US administration has, in fact, proved unwilling to back any project that offers an economic benefit to Iran. US plans are fundamentally driven by concern over the safety of U.S. energy supplies, as was the 2003 U.S. invasion of Iraq. And all one need do is substitute the words “Iranian mullahs” for Saddam Hussein, and you have a perfect expression of the Bush administration case for making war on Iran. So, even while publicly focusing on Iran’s nuclear issue, key administration figures are thinking in geopolitical terms about Iran’s role in the global energy equation and its capacity to obstruct the global flow of petroleum.

The US enacted legislation prevents any US national from investing or trading with Iran (by Executive Order) and provides for the possible imposition of sanctions against any commercial entity, which invests more than US $20 million in Iran (Iran-Libya Sanctions Act).

Nevertheless, in retaliation to such unilateral legislation, the EU has made it an offence, by regulation, for any EU company to abide by any legislation which threatens unilateral sanctions against EU companies, like ILSA; such sanctions are seen by the EU and other countries like Australia, to be contrary to WTO. As a result, there has been a tacit agreement between the US and the EU that the US will not levy sanctions against EU companies. The Project will not be affected by US legislation, as BHP Billiton is both a EU and Australian registered entity.

During her recent visit to the Sub-continent, the US Secretary of State Condoleezza Rice conveyed Washington’s concerns to India and Pakistan over plans to build a gas pipeline from Iran. Why does the US opposes the Iran-Pakistan-India pipeline project and support the Turkmenistan-Afghanistan-Pakistan (TAP) pipeline project? Why does Russia support the Iran-Pakistan-India pipeline project and oppose Turkmenistan-Afghanistan-Pakistan (TAP) pipeline project?

According to Oil and Gas Journal, Iran has an estimated 940 trillion cubic feet of gas, or approximately 16% of total world reserves. (Only Russia, with 1,680 trillion cubic feet, has a larger supply.) As it takes approximately 6,000 cubic feet of gas to equal the energy content of 1 barrel of oil, Iran’s gas reserves represent the equivalent of about 155 billion barrels of oil. This, in turn, means that its combined hydrocarbon reserves are the equivalent of some 280 billion barrels of oil, just slightly behind Saudi Arabia’s combined supply. At present, Iran is producing only a small share of its gas reserves, about 2.7 trillion cubic feet per year. This means that Iran is one of the few countries capable of supplying much larger amounts of natural gas in the future. What all this means is that Iran will play a critical role in the world’s future energy equation. This is especially true because the global demand for natural gas is growing faster than that for any other source of energy, including oil.

IPI is to provide gas for 30-50 coming years, while Qatar and TAP projects are yet to commit for any such reserves. Tariff wise too, IPI stands ahead, charging US$0.7 which is too less as compared to Qatar and TAP with US$1.5 and US$1.25 respectively.

Construction of a natural gas pipeline fro Iran to India via Pakistan with a cost of greater than US$5 billion is an extraordinary step for two long-term adversaries. If completed, the pipeline would provide both countries with a substantial supply of gas and allow Pakistan to reap $200-$500 million per year in transit fees and economies of scale. “The gas pipeline is a win-win proposition for Iran, India, and Pakistan,” Pakistani Prime Minister Shaukat Aziz declared in January.

United States opposition to the pipeline and Iran’s opposite strict stance, has not however, deterred India from proceeding with the Pipeline. And it should not deter Pakistan also. The pipeline is quite attractive as an incentive for reconciliation between India and Pakistan—nuclear powers that have fought three wars over Kashmir since 1947 and remain deadlocked over the future status of that troubled territory. Moreover, the very fact that this pipeline has the ability to secure energy requirements for the coming 50 years is itself an ample raison d'être for opting for it.